Paramount Group alleges smear campaign in Paramount Combat Systems case

2061

Paramount Group is opposing legal action over alleged foul play in the liquidation of Paramount Combat Systems that it says is part of a wider misinformation campaign orchestrated by disgruntled former employees attempting to compete with Paramount for international contracts.

General Kinetics Engineering Corporation (GKEC), a creditor of Paramount Combat Systems (PCS), has made an application to the High Court of South Africa to declare void and reverse the sale of assets and intellectual property (IP) of PCS that the liquidators sold to Paramount Land Systems. GKEC claims the sale was done at well below market value.

Paramount has responded with an opposing affidavit where it opposes General Kinetics’ allegations, accusing it of libellous, defamatory and vexatious conduct. A Paramount spokesman said “We have good reason to believe that there is a commercial, political, and personal attack against the Paramount companies orchestrated by former employees who left the company under a cloud. Some are also now competing against our company for the same global contracts, offering similar products to potential customers. These individuals are also running misinformation campaigns in countries where we have customers or are exploring new business opportunities. They appear to be determined to sabotage our business by any means necessary, and some appear to have committed criminal offences as a result, including the theft and sabotage of our assets. We at Paramount Group take this very seriously and will not hesitate to take the necessary action to protect our reputation and our brand against these libelous and defamatory allegations.”

General Kinetics is a Canada-based manufacturer and supplier of dampers, shock absorbers, hydro-pneumatic suspensions, blast mitigation damping systems and seat suspension dampers for military vehicles.

Paramount Combat Systems has its origins in 2006 when the Group established an armoured vehicle company. In 2012 Paramount acquired Industrial and Automotive Design (IAD) to further expand its vehicle business. It was renamed to Paramount Land Systems, then Paramount Innovation and Design, and then Paramount Combat Systems in 2016. It manufactured armoured personnel carriers (APCs) as well as military vehicle components from facilities in Isando, managed by CEO Ben Jansen (previously from IAD). Jansen departed PCS in January 2017 on apparently unhappy terms.

By 2018 Paramount Combat Systems was experiencing financial difficulties, having encountered severe cash flow challenges emanating from the cancellation of a number of agreements with customers. Some of the agreements were cancelled/terminated after the company had procured the majority of components to complete orders. This placed financial pressure on the company which first resulted in the board resolving to commence with business rescue proceedings and ultimately to its liquidation.

Some of the cash flow challenges, according to Paramount, were due to suppliers going into business rescue (notably Thata Ubeka Manufacturing), late delivery of vehicle kits to Kazakhstan Paramount Engineering and delays delivering Marauder type vehicles to Singapore (STK). Jordan subsequently defaulted on payment for a batch of Mbombe 6 vehicles.

Paramount Combat Systems was put into business rescue but in March 2018 Singapore Technologies Kinetics Limited (STK), a substantial creditor of PCS, applied for the provisional liquidation. Cloete Murray, Caroline Ledwaba and Ethne May were appointed provisional liquidators by the Master of the High Court, Pretoria and a public auction was scheduled and advertised to dispose of the assets of PCS in June 2018. In October 2018, PCS was put into final liquidation.

The first meeting of creditors and liquidators was held in June 2019. The meeting was used to establish a legitimate list of creditors’ claims that were either proved or rejected and the list was subsequently finalised. According to the liquidator’s website, STK’s claim of 23.6 million Euros (R438 million) was rejected. PCS was indebted to a range of creditors, with its total debt amounting to R545 159 750. The largest trade creditor was Paramount Industrial Holdings (PIH) with an amount of R423 575 887, which was later reduced to R315 million as a result of an unintentional oversight from Paramount.

In October 2019, a second meeting of creditors was held. The liquidators report stated the movable assets (office equipment, industrial tools and vehicles) of the company had been sold by public auction. The liquidators, according to the General Kinetics application, allegedly unknown to the vast majority of creditors’ knowledge, had adopted resolutions for the remaining assets and certain IP (specifically, the IP of the Gila 4×4 Mine Protected Vehicle, IS5000-series and IS7000-series Independent Suspension and Flat Floor Mine Protection Hull) to be sold.

The High Court application, dated 28 April 2020 and signed by General Kinetics CEO Charles Williamson, states that “Neither the applicant, nor the other creditors of PCS were provided with sufficient information regarding the sale agreements before or at the second meeting of creditors held on 9 October 2019. In fact, it would appear that some of the information that was indeed provided was incorrect, among others that all the moveable assets of PCS were sold by public auction.”

The application states that resolutions adopted at the second creditors’ meeting were designed to shift the assets of PCS to its sister company, Paramount Land Systems, therefore benefiting PLS and the Paramount Group in general. The application says the right of the applicant that the proper and/or fair value of the assets of PCS be realized was infringed and therefore the resolutions in the second meeting should not have been adopted and that the intellectual property had effectively been handed over to PLS for a pittance and that the general body of creditors was not informed about the details of the sale agreements before or at the second creditors’ meeting.

In the application’s conclusion, it is highlighted that, “There were directors common to both PCS and PIM [Paramount International Marketing/Paramount Land Systems], namely Mr Craig and Ms Crooks, both directors of [Paramount International] Holdings, PCS’s largest creditor, which wielded the greatest influence in the liquidation.”

Paramount Land Systems and Paramount Combat Systems are wholly owned by Paramount International Holdings.

The application states that more than a month before the auction of PCS assets, an agreement for the sale of assets had already been concluded between PCS and PLS.

Paramount in an answering affidavit dated 9 July 2020 refuted General Kinetics’ allegations in its application, saying the documents are “entirely misconceived”. Paramount argues that the 2018 sale was wholly legal as Paramount International Marketing put forward an offer to the liquidators to buy certain inventory stock, assets and the residual IP and the liquidators accepted the offer, as being the best offer in the circumstances. The liquidators then obtained the authority of the High Court to sell the assets.

The sale agreements mentioned in General Kinetics’ application were concluded in May and July of 2018. The resolutions to ratify those sales were passed in September 2019. “It appears General Kinetics has, without explanation (and despite being aware of the conclusion of the agreements and the resolutions), waited until 28 April of this year to issue proceedings, without any provision of security,” Paramount said.

In addressing the suggestion that the liquidators involved in the sale agreement colluded with Paramount Group to shift assets within its Group of Companies, Paramount said these allegations were not only false, but defamatory. “The liquidators and the Paramount Group do not have a collusive relationship and in fact the very opposite is true; they dealt with each other at arm’s length. Cloete and Murray has a reputation for being extremely professional and independent. Any allegations that there was some kind of collusion is malicious,” Paramount’s spokesman stated.

“Intriguingly…it is reported that General Kinetics was a creditor for the relatively-insignificant amount of CA$165 520, (less that R2 million) whilst the total general body of proved creditors, the majority of which having voted for the sale, exceeded over R545 million,” Paramount said.

The liquidators report stated that the movable assets had a value of R51 million. Of this, Paramount bought moveable assets to the value of R22.3 million while other third parties bought the balance of assets.

A Paramount spokesman confirmed that Paramount Group paid R22.3 million for the stock as a lot (a further R3.1 million was paid for certain production equipment and R200 000 for residual IP). Countering the allegation that the stock that Paramount International Marketing (Paramount Land Systems from 2019) purchased could have fetched a higher price at auction, Paramount said the decision to sell the stock to them was taken by the liquidators after the majority of the creditors voted in favour for such sale.

“The creditors were also aware that many of the components sold were controlled items and were manufactured for bespoke use for certain Paramount-designed vehicles. They have a very limited pool of potential purchasers, with persons purchasing same having to hold a specific permit, in keeping with South Africa’s strict arms control regulations found within the conventional arms control system, governed by the National Conventional Arms Control Committee (NCACC). Furthermore there were no other buyers who would have purchased all the stock as one lot,” Paramount said.

PCS’s intellectual property was priced at R200 000. The High Court application quotes Stephan Burger, former CEO of Denel Land Systems, as saying the intellectual property alone would run into the millions, possibly 100 times what it was sold for to PLS. Similarly, the application quotes Clive Else, financial director of TFM Industries, as saying the amount for which the IP was sold appears to be below a market-related value.

According to a Paramount spokesman, the IP in question “was residual IP which could not be used to produce a complete vehicle or a significant vehicle system. It is also limited to only two suspension systems, out of which only one system has to-date been used and only to an insignificant degree (namely in the manufacture of four vehicles for sale) and which intellectual property can only be used in concert with other valuable intellectual property housed in other entities. Also included are two mine protection hull designs which have never been certified. The only vehicle design included in the residual IP is the ‘Gila’ vehicle – an obsolete platform, which has never been sold to any customer and the IP hasn’t been used commercially for over ten years.”

General Kinetics further alleges Paramount continue to sell armoured vehicles around the world, benefitting from PCS’s previous input and IP. The application states that the sale of PCS’s moveable assets and IP contribute to the development of new vehicles and equipment and in generating substantial revenue for the Paramount Group. Paramount counters this, saying its intellectual property has been built up over 15 years, prior to and during the existence of Paramount Combat Systems, as a solvent company and post the liquidation of Paramount Combat Systems, and is not owned by Paramount Combat Systems.

The liquidators recommended an enquiry under Section 417 of the Companies Act be conducted to interrogate the reasons for failures of PCS and on 4 February 2020, the enquiry was adopted.

defenceWeb has been informed that General Kinetics are late in filing their Replying Affidavit, which Paramount believes is because they are intentionally delaying the hearing. A letter was addressed to General Kinetics’ attorneys two weeks ago from Paramount’s attorneys, demanding the filing of the Replying Affidavit, failing which, the matter will be set down for hearing.

“It is also of interest that General Kinetics, a foreign entity, has until now, more than three months after leaking their affidavit to the media, not provided the required security to launch legal action in South Africa,” a Paramount spokesman said. “This raises further suspicion that there was never any intention to proceed with legal action but merely a tactic to attack our reputation and use the media to achieve this. We have evidence that this smear campaign is orchestrated by a small group of former disgruntled executives who left the company under a cloud, and some are now linked to General Kinetics”.

Paramount’s spokesman concluded by saying that “The application of General Kinetics is entirely misconceived and we deny that anything improper or unlawful has occurred in respect of the sale agreements. They haven’t provided any facts that might somehow entitle it to have the sale agreements set aside. We believe this is part of a wider black ops misinformation campaign by former disgruntled employees.”

Paramount in its affidavit said it is anyway impossible to return stock to the liquidators due to the sale agreements, passage of time and the utilisation and disposal of the stock, which has either been sold or used to manufacture other products. “On this basis alone the relief sought is a legal and factual impossibility.”



Paramount’s affidavit, signed by Paramount Land Systems Executive Chairman Robert John Craig, concluded that the application be dismissed with costs.